Market Timing Pro

Maintaining Discipline, Key to Market Timing Success

The winning market timer is the disciplined market timer. Discipline means controlling impulses and controlling emotions.

As many new market timers can tell you, however, maintaining discipline is often easier said than done.

Just as the vast majority of market participants are driven by fear and greed, many new market timers find it difficult to avoid succumbing to self-doubt and panic.

Market timing is challenging in that we often take positions "against" the prevailing sentiment of the majority of traders.

Discipline is key, and it is vital to take whatever steps are necessary to maintain that discipline.

Markets Are Chaotic

The markets are chaotic and unpredictable. The current volatility being a perfect example. When faced with an uncertain set of circumstances, it is easy to see why market timers may, at times, feel unsure and unsettled.

Timers follow strategies that provide entry and exit signals based on plans designed to be profitable over time, and that will also protect their capital. 

But no timer can know with certainty how any "one" buy or sell decision will play out. Some market timers thrive on the excitement, but many find it disconcerting.

The best way to combat feelings of uncertainty is simply by following a trading plan. If one trades with a detailed trading plan, such as the strategies offered at FibTimer.com, he or she will impose structure onto an unstructured reality.

The markets may seem at times like a mass of confusion, but you can address it by following a strategy that actually uses the volatility of the markets to generate timing decisions.

The more structure you have to follow, the less uncertain and unorganized you'll feel. You will know what to do and when to do it.

Optimistic Yet Realistic

One's mood and attitude is another factor that impacts the ability to maintain discipline. An optimistic yet realistic attitude is vital to maintain market timing success.

Because market timing often places you at odds with the current market sentiment, it is understandably hard to feel optimistic when your position is at odds with the majority.

It takes practice.

Emotions And Decision Making

Maintaining discipline is vital for market timing success. It can be extremely difficult at times, especially in sideways (non-trending) markets.

The best way to be disciplined is to stick to your timing strategy and keep your emotions and impulses under control.

Only by maintaining discipline can you realize long term success timing the markets.

Remember that all trading strategies require discipline. Not just market timers. It is the one crucial element between successful traders and unsuccessful ones.

Rally Still Intact

May 9, 2008

The S&P 500 Index – SPX dropped on Wednesday, May 7, as oil prices reached new highs, a daily event of late. The Dow Jones Industrials - DJIA lost over 200 points while the SPX shed 25.69 points.

Is this the start of the great unraveling? Has the rally hit its last new high?

Last week we wrote that the first resistance level, marking the 50% retracement of the entire six month decline, was at SPX 1416. A close above this level would be bullish and forecast a run to at least SPX 1454.

Tuesday’s close was only a fraction above SPX 1416 and the next day the market sold off. When profit-taking occurs right at projected resistance levels, it is actually bullish. Look for higher highs over coming weeks, and maybe a bit more selling along the way to SPX 1454.

Anadarko Petroleum (NYSE: APC) On Fire

May 8, 2008

Shares of Anadarko Petroleum (NYSE: APC) have skyrocketed this week, adding some 16% in value in the last three days.

For traders who believe in buying new highs, Anadarko certainly has been a winner. But reality may catch up to stock performance soon, especially as Anadarko closes in on $80 a share.

Look for profit taking to trim some of these gains in coming days, and if Anadarko reaches $80 a share, a healthy correction. But with no end in sight for crude oil prices of coming months, continued new highs appear to be in the cards.

The Fibtimer.com (http://www.fibtimer.com) Stock Timing Strategy has a position in Anadarko Petroleum.

Ishares Lehman 20yr (NYSE: TLT) Closes In On critical Support

May 7, 2008

Shares of the exchange-traded fund Ishares Lehman 20yr (NYSE: TLT) are closing in on a long term support level that must hold if the ten-month rally in bonds is to survive.

The $90 level has stopped two corrections since December 2007. If this level holds again, we could see another run for the highs, around $97 a share.

If the $90 level fails to hold though, and this is also the 50% retracement for the entire June 2007 to March 2008 advance, we could see considerably lower lows.

A break of support would set up an initial downside target for TLT of $88.20.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in TLT.

Internet HOLDRS (AMEX: HHH) Takes a Hit

May 6, 2008

Shares of the Internet HOLDRS (AMEX: HHH) ETF sold off Monday, May 5, on news that Microsoft Corp (NASDAQ: MSFT) was withdrawing its bid for Yahoo! Inc (NASDAQ: YHOO).

Not to get into the deal between these two internet powerhouses, but Internet HOLDRS declined, intra-day, to $54.16 a share. This may be about as low as it will go, setting up a potential buy for this actively traded ETF.

$53.35 is the 61.8% retracement for the March 17 to May 2 run-up in share prices, while $53.35 is also the 50% retracement for the entire February 1 to May 2 advance, from the panic lows on January 23 and January 31. This means there are intersecting support levels for Internet HOLDRS just below Monday’s lows.

It is unlikely prices will decline lower than $53.35 without a reversal. Monday’s intra-day lows may have come close enough to be the final lows. If Internet HOLDRS rallies on Tuesday, look for higher highs in coming weeks.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in Internet HOLDRS.

S&P 500 (SPX) & Nasdaq 100 (NDX) Timing

S&P 500 Index (SPX) Chart Analysis

Last week we wrote:

"...Early in the week the markets moved lower but after each wave of selling, it was able to claw its way back from steep losses. Finally those daily losses turned into daily gains on Wednesday through Friday but even during these positive days, the SPX had strong intra-day selling that tried to turn the markets down. It is bullish when poor news, in this case earning reports, cannot hold the markets down for long."

This week:

The S&P 500 Index - SPX, along with the Nasdaq, had strong advances this week, though the volatility certainly has not diminished.

The market is climbing a wall of worry, and this is as it should be. There are still many who firmly believe we are in a bear market and they are just waiting for the next shoe to drop. As the stock market continues to improve, they will slowly be pulled back in, adding more fuel and higher highs.

That is not to say there will not be corrections along the way. We are, in fact, overdue for some profit taking. The SPX in particular is right at its first major resistance level, the 50% retracement of the entire six month decline. That may be a factor in next week's trading.

A close above that resistance level, at SPX 1416 (see below chart) would forecast a run to at least the next resistance level, at SPX 1454.

The 50-day moving average continues to move higher. The 200-day moving average is now within a good day's trading and if surpassed that average will be another solid bullish indicator for traders, and likely for news broadcasters as well.

Note that the Nasdaq 100 Index - NDX (discussed below) actually broke above its 200-day moving average this week.

To recap the previous bullish indicators still in place; we have three better than 9 to 1 up volume vs. down volume days for the NYSE, in just over a month's time. 9 to 1 days are considered rare events, though the past year has been peppered with them. Still, they do tell us that there have been three recent breadth explosion days, typically only seen at the beginning of substantial new up-trends.

The CBOE Volatility Index - VIX signaled panic lows twice, in January and March. It is now approaching levels that may be signaling a correction, but not a new bearish decline.

Elliott Wave Theory is still bearish and calling for new legs down in all the major indexes. We will just have to see how this plays out. Elliott Waves have a good track record but are open to huge amounts of interpretation which is why we watch them, but do not trade them. The Elliott Wave Theory, from what we can see, will not turn bullish until the SPX closes above Wave B, just above the SPX 1500.

Last week we wrote; "The SPX should reach at least 1416 before sellers step in and slow things down. But even this strong resistance level is unlikely to stop a new bullish trend. If this level is surpassed, the next target will be SPX 1454."

We traded above SPX 1416 on Friday and closed just shy of that number.

The SPX portion of this strategy is in a BULLISH position. We are now in the Rydex Nova Fund - RYNVX (or other bullish S&P 500 index fund) for both active & aggressive traders

S&P 500 Index (SPX) Daily Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"...The NDX chart still has those nagging gaps in it, created at the open on Tuesday and again on Friday of the previous week. Typically gaps are filled, but not always. We will be watching for signs of this next week. An attempt to fill the first gap was made on Tuesday of this week but buyers stepped in and the markets rallied higher."

This week:

Again the Nasdaq 100 Index - NDX had a solid gain and again it is the leader for the stock market. This is the way we want to see it during a new advancing trend.

The NDX is now far above its 50-day moving average and well above the declining trend resistance line it surpassed several weeks ago (see below chart). The 50-day moving average has been moving higher for this index, since late March.

This week, the NDX closed above its 200-day moving average. This is a huge accomplishment for an index that technically was in a bear market having over a 20% loss in the decline. This is a very important bullish indicator. Many traders and money managers consider the 200-day moving average to be the most important indicator of whether we are in bull, or bear, market.

The NDX was the first to issue a new buy signal and is clearly the leader in this advance. That is as it should be as sustained market advances are typically led by the Nasdaq indexes.

Last week we wrote; "The target for this advance remains at NDX 1951, the 50% retracement of the entire market decline. if this level is surpassed, the forecast will be for NDX 2020. Somewhere in there we will be looking for the next healthy correction."

That level was soundly broken to the upside on thursday. The new target for this portion of the strategy is now NDX 2020.

The NDX portion of this strategy is in a BULLISH position. We are now in the Rydex Nasdaq 100 Fund - RYOCX (or other bullish Nasdaq 100 index fund) for both active & aggressive traders.

Nasdaq 100 Index (NDX) Daily Chart

Sector Timing for Active Market Timers

The current markets are as volatile as any seen since the 2000-2002 bear market chopped 50% to 80% off the major indexes. Only in the past few weeks have the beginnings of a solid trend taken shape.

Volatility is great if it is within a trend, and it usually precedes a new trend, often causing unnecessary anxiety in inexperienced market timers. But volatility is also needed to profit, something that many market timers forget.

There is one strategy that is hardly affected by the volatility, and it is also quite profitable, year after year. For those who are active market timers, we suggest the Fibtimer Sector Timer.

Trading the Sectors

How does a market timer take advantage of volatility, while protecting himself or herself from the very real risks such volatility creates?

The answer is by trading the sector funds. Here is a "quick" list of reasons why:

1. Diversification: By having small positions in multiple industries, you reduce exposure to any single industry being affected by a negative news event.

2. Volatility: While individual sectors are no less volatile than the rest of the market, they do not move together. So the volatility to one's portfolio is considerably reduced.

3. Drawdowns: Because sector funds go to cash during sell signals, and because there are always some funds in bull markets at the same time there are others in bear markets (during which those sectors are protected in money market funds), drawdowns are kept to extreme minimums.

4. Good in All Markets: There are always single industries in their own bull markets. Even during a cyclical bear market, such as we experienced during 2000-2002, there were always some industries moving higher. And if not, you are still protected by being in money market funds.

5. Active Timing: Though sector timing is not aggressive, it is certainly active. You will always be trading the bullish sectors, and exiting the under performing ones. In some respects, it is the equivalent of running your own well managed mutual fund.

6. Trends: Industry sectors tend to trend. And when they trend, they often move further (in either direction) than anyone expects. During a strong bull run, it is common to find individual sectors that double the gains of the overall market.

Winning The Battle

The FibTimer Sector Timer strategy covers 16 industry specific sector funds found in the Rydex Fund Family. Several other widely used fund families also have sector funds, including Pro Funds and Fidelity Funds which can be used with our sector timing signals.

Even in volatile market conditions the Sector Timer strategy performs exceptionally well.

This year, most of the sectors have been in cash for a good part of the time. Over the past weeks they have begun moving back to bullish positions. This is proactive money management at its best. Constantly putting your money in the strongest sectors while removing it from the weakest sectors during down trends.

This is where the diversity inherent in sector timing stands out. Top performing sectors are where your timing funds are allocated, and no one sector can cause irretrievable damage to the portfolio should that industry collapse without warning.

But most importantly, as a portfolio strategy, sector timing has been winning the battle against a poor stock market, that only now may be finally pulling itself out of a substantial correction.

Conclusion

Over the years, sector fund timing may go down as the "best strategy ever created" because of its ability to target funds into "only" those industry sectors which are performing well.

The low drawdowns, low volatility and diversification inherent in sector timing, not to mention strong profitability, cause this strategy to stand out from all the others.

In volatile market conditions, such as we have been experiencing, sector timing can create profits while other traders are watching their capital evaporate.

While sector timing may not make huge gains during cyclical bear markets, being mostly in cash, the strategy will protect your investment capital. And it will then outperform during bull markets, always keeping you invested in those industries that are in their own bull markets.

Caveat... sector timing does require active participation. The FibTimer Sector Timer usually makes a change once or twice a week. Sector timing also requires a minimum account size. Remember, there "could" be as many as 16 open positions at any one time, and closed (bearish) positions should be in cash (money market funds) with those funds remaining untouched. A good guess is that a sector timing portfolio should be at least $25,000 to start.

The FibTimer Sector Timer only requires a couple of minutes a day to check for and make changes if they are needed. And we email those changes every evening to subscribers.

How High Can The Rally Go?

May 2, 2008

The S&P 500 Index – SPX rallied on Thursday, the day after what is likely to be the last rate cut for awhile. At the close, the SPX was at $1409.34, just a fraction below the 50% retracement level for the entire October 2007 through March 2008 decline.

The Nasdaq Composite Index – COMPQ soared almost 68 points on Thursday, and led the way higher closing at 2480.71, about 1% below the 50% retracement level. Remember that the Nasdaq was down over 20% in this decline. Bear market numbers.

How high can the averages go? While a new bull market would take the averages to new rally highs, that is still a bit too far in the future. Better to look at coming weeks instead.

If the SPX closes above 1416.22 in coming days, it will likely reach at least 1454 on this leg up. If the COMPQ can top 2511.02, look for the rally to push that index to at least 2595 before profit taking slows things down.

The stock market can go higher, but the further out we look, the murkier is the forecast. Suffice that for now, the direction remains up.

Powershares QQQ (NASDAQ: QQQQ) Hit Resistance

May 1, 2008

The Powershare QQQs (NASDAQ: QQQQ) reached the 50% retracement for the entire November 2007 to March 2008 decline and then reversed.

The QQQs rallied after the Fed cut interest rates on Wednesday, April 30, but upon reaching $48.05, exactly 50% of its entire correction loss, the QQQs reversed and closed lower for the day.

Is this the end of the rally for the QQQs? Not necessarily as the reversal at resistance was expected and is normal after an extended advance such as the QQQs have had.

After profit taking ends, a close above $48.05 in would likely be followed by an advance to at least $49.71.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in the Powershare QQQs.

Resistance Ahead for S&P 500 SPDRs (AMEX: SPY)

April 30, 2008

Shares of the S&P 500 SPDRs (AMEX: SPY) are just a fraction below the 50% retracement for the entire October 2007 through March 2008 decline. That level can be tough to surpass and so far this week, the SPY has backed off from it during both trading days.

Wednesday’s Fed announcement will likely be the catalyst that either sends prices above resistance, or locks in a pullback, likely short-term in nature. When the Fed makes its announcement on Wednesday, watch for a reaction at $141. If the SPY powers above this level, we will likely reach at least $145 in coming days.

If we reverse, expect a correction for the remainder of this week at least, though likely the trend will soon reinstate itself and push prices higher again.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in the S&P 500 SPDRs.